Friday, 24 February 2012

Business, Contracts, and law

I grew up over a shop - as my parents ran a business, and I have been running A&A for nearly 15 years now. I have been in business a long time. I have even been involved with a company that went under many years ago, costing me a lot of money. Lessons have been learned in many ways.

In all that time I have entered in to many contracts, as a consumer and a business. Personally I have argued contract terms with businesses and sued a few. As A&A we have taken people to court and won, and even lost in one case. Many more lessons learned.

I don't claim to be legally trained, but decades of experiences, and a contract law book or two, mean I have a good grasp on contracts. To be honest, you have to in order to be in business.

The concept is simple - an enforceable agreement between two parties (well, sometimes more). Each party agrees to do something for the other - often one side providing goods or services and the other side providing money. Each side has to do what they agreed. If not, they have to compensate the other side for their losses. The courts will enforce the contract if there is a dispute and have power to order bailiffs and the like.

That is it in a nutshell - but there is a lot more. Just understanding the agreement and resolving ambiguities, for a start. Sometimes contracts are not written down. Sometimes there are implied terms by custom, or by law. Sometimes there are special nanny state provisions to protect consumers. It is not as simple as it sounds.

But that said - the whole idea of contract has been a cornerstone of all trade for most of the world for many centuries. It is enshrined in common law and legislation.

Of course a business to business contract is often easiest as businesses are expected to read the terms before agreeing, and at least understand the basics of contract law.

Contract law is one of the two main civil ways you can get a liability for something. Breach of contract means compensating for a loss - the compensation is not to punish you or benefit the other side - just put it back as it would be if you had not breached the contract. The other main case is tort, but where there is a contract in place then tort does not normally apply - your duty being to do what is agreed in contract. Also tort is complicated and means showing there was some duty of care that is breached. The only other ways to get a liability are criminal, and that is where the result is a punishment (money, prison, etc).

The county courts small claims track is all about contracts. Mostly they are resolving a misunderstanding in a contract, and deciding on costs for a breach. They probably spend half their time explaining the principles of contracts to the parties, especially where consumers are involved.

I thought I had a good handle on it until ADR came along, or as we call it now "Alternative Reality Dispute Resolution". But no! My world is turned upside down by this. It undermines all I understood about doing business. It undermines centuries of common law.

They agree we are not in breach of contract. Normally that would be all of the hard bits of a contract dispute sorted. No breach of implied terms, no misunderstanding of terms, just not in breach. Yay!

But no - somehow, even though they agree that there are no defined losses to compensate for (and that as no breach of contract then compensating for losses is not appropriate), and even though the terms make it clear that no award they make is punitive (i.e. punishing us), they decide we have to pay £1200 (waive £700 of charges due and pay £500 good will).

A court would not have the power to do that - contract law does not allow it.

So how the hell can I do business, when the contract no longer matters - when someone can be awarded random large sums with no basis in law even if I have done what was agreed in contract. I am so flabbergasted by this I don't know what to say.

I have often thought of taking a course on law, specifically contract law, and may have to do that now.